REX American Resources Corporation — Form 10-K Summary
Period clarification: The supplied filing is the annual report for the fiscal year ended January 31, 2013, which the company calls fiscal 2012 (February 1, 2012–January 31, 2013). It is not a filing for calendar 2011 or fiscal 2011 Q4.
Business context
REX had exited retail in 2009 and reported two segments: alternative energy, principally ethanol, and real estate. It consolidated One Earth and NuGen and held minority equity-method investments in Big River and Patriot. Results are highly exposed to corn, ethanol, distillers-grains, corn-oil and natural-gas prices. Fiscal 2012 revenue growth chiefly reflects consolidating NuGen for the full year, rather than comparable organic growth.
Key financial results
| Metric | Fiscal 2012 | Fiscal 2011 |
|---|---|---|
| Net sales and revenue | $657.7 million | $409.9 million |
| Gross profit | $13.5 million; 2.1% margin | $34.0 million; 8.3% margin |
| Alternative-energy segment profit (loss) | $(1.0) million | $48.6 million |
| Continuing-operations income (loss) | $(2.2) million | $32.1 million |
| Net income (loss) attributable to REX shareholders | $(2.3) million; $(0.28) per share | $28.3 million; $3.10 per share |
| Cash provided by operating activities | $17.0 million | $34.9 million |
Revenue rose 60.5%; gross profit fell about $20.5 million. Ethanol-segment gross profit was pressured by a reported crush spread of approximately negative $0.32 per gallon, versus positive $0.11 the prior year. Average ethanol selling price declined to $2.23 per gallon from $2.49, while average corn cost rose to $7.14 per bushel from $6.66. Fiscal 2012 included a $1.6 million income-tax benefit; fiscal 2011 included a $3.5 million net bargain-purchase gain and $2.9 million synthetic-fuel income, both nonrecurring.
At January 31, 2013, cash and cash equivalents were $69.1 million, current assets $114.9 million and current liabilities $31.5 million. Total assets were $405.3 million. Debt was $106.9 million, including $15.6 million current and $91.3 million long-term; reported weighted-average interest rate was approximately 3.7%. Fiscal-year-end cash declined $5.9 million. Capital expenditures were $3.7 million. REX repurchased shares for $4.4 million in cash flows (the equity note reports total treasury-stock acquisitions of $5.4 million, including shares tendered for option exercises).
Material changes, outlook and risks
- Consolidation and earnings: NuGen became controlled and consolidated from November 1, 2011; full-year consolidation in fiscal 2012 materially increased reported sales and debt. Equity-method income from Big River, Patriot and NuGen fell to $0.6 million from $21.5 million.
- Operating outlook: Management expected consolidated plants to produce approximately 200–230 million gallons annually, assuming One Earth and NuGen operate near nameplate capacity. It forecast fiscal 2013 capital expenditures of $2–3 million and interest expense of $3.8–4.3 million. Management expected ethanol operations to remain challenged until at least the fall harvest, while noting improved—but still negative—crush spreads early in calendar 2013. These are forecasts, not guarantees.
- Debt covenants: One Earth and NuGen failed their respective fixed-charge-coverage tests at the relevant fiscal-year-end measurement dates (0.54x and 0.41x, against 1.10x requirements). Lenders permanently waived those specific failures in amendments dated March 13, 2013, and revised future testing requirements. The amendments and management’s forward compliance expectations merit close review.
- Liquidity constraints: Approximately $21.3 million of cash was held by One Earth and NuGen and primarily needed for their working capital and debt service. Debt agreements restrict distributions; management reported 73.2% of net assets, including equity-method investees, as restricted. Parent-company cash was $47.7 million.
- Market, customer and asset risks: Commodity-price volatility, drought-related corn costs, ethanol oversupply, regulatory changes, plant operating interruptions and variable-rate debt could materially affect results. Four customers represented approximately 81% of fiscal 2012 revenue and 80% of year-end receivables. REX also had 11 vacant former retail properties and partially vacant distribution-center space.
- Other contingencies: REX disclosed approximately $4.7 million of income from sales of synthetic-fuel partnership interests involving tax-credit years still open to IRS audit; disallowance could require refunds. The filing reported no material legal proceedings or off-balance-sheet arrangements. The independent auditor gave an unqualified opinion and reported effective internal control over financial reporting.
Most important facts for investors to verify
- Whether the covenant waivers and amended tests remain effective and whether both plants meet subsequent requirements.
- How current and forward corn, ethanol, distillers-grains and corn-oil prices affect realized crush margins, cash generation and production levels.
- Debt maturities, refinancing or balloon-payment exposure, variable-rate sensitivity, and the extent to which subsidiary cash can be distributed to REX.
- Customer concentration, receivable collectability, and the status of the synthetic-fuel tax-credit exposure and deferred tax assets.
- Whether production, capital-spending and interest-expense forecasts were achieved, and whether vacant real estate was leased, sold or impaired.